Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nyse  >  BlackRock    BLK

BLACKROCK (BLK)
My previous session
Most popular
  Report  
SummaryQuotesChartsNewsAnalysisCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsofficial PublicationsSector newsTweets

Meltdown raises fears of 'financial innovation the planet doesn't really need'

share with twitter share with LinkedIn share with facebook
share via e-mail
0
02/09/2018 | 11:17am CEST
People monitor a stock index board at a bank in Bangkok

LONDON (Reuters) - The global market turmoil of the past week has shone a light on complex trading instruments listed in the United States and Europe - a number of which have been taken off the market - which some investors blame for the scale of the disruption.

Monday's stock sell-off triggered the biggest rise ever in S&P 500 volatility <.VIX> futures, forcing Credit Suisse and Nomura to close down products that enable investors to short the VIX after they posted massive losses.

The VIX itself measures market expectations of how choppy the S&P 500 <.SPX> might be over the coming month. With the U.S. index becoming the most widely-traded in the world, the VIX is seen by many as a key barometer of investment sentiment.

Investors trade volatility through VIX futures contracts, reflecting bets on future stock swings.

Inverse exchange-traded products (ETPs) based on the VIX add another element of complexity, allowing investors to take short positions on volatility futures, hence betting on fading volatility.

Add in leveraged products, which enable the buyer to multiply the scale of their bet many times over, and the possibility for market havoc becomes clear.

The popularity of these products has grown in the past two years as strong global growth and low interest rates cemented expectations volatility would stay muted.

One of the main concerns with the products now available is that regular retail investors with no specialised knowledge have been trading them in growing numbers, greatly exacerbating the market swings they can produce.

Inverse volatility ETPs in Europe, for example, sank this week after a key gauge of European stock volatility <.V2TX> surged. Providers of these products said, however, they were not at risk of a major blow-up as they have different structures and precautions to ensure only professional investors can use them.

But there are signs regulators are beginning to take note of the growing cottage industry for products such as inverse VIX trackers and other leveraged bets on market volatility.

Credit Suisse said its inverse VIX exchange-traded note (ETN) <XIV.P>, the second-most widely used product tracking the VIX, would stop trading by Feb. 20, and the Swiss market watchdog on Wednesday said it was in touch with the bank about the product.

SHARP SWINGS IN EUROPEAN VIX ETFS

Most leveraged and inverse tracker products are U.S.-listed, and have proliferated as the ETF industry itself expanded. Europe's ETF market is comparatively less developed.

But European products which do offer inverse or leveraged exposure to volatility have also been on a rollercoaster ride as volatility markets convulsed.

The London-listed Boost VIX short-term futures 2.25x leveraged daily ETP <VILX.L>, issued by WisdomTree, soared 44 percent on Tuesday and sank back 42 percent on Wednesday as the VIX returned to more normal levels.

These were easily its biggest swings since its inception in March 2016. Some 23 million shares were traded in the instrument on Tuesday, more than six times the daily average, a WisdomTree spokesperson said. http://tmsnrt.rs/2sg8J8R

VILX long VIX ETP volumes: http://reut.rs/2sjyZiu

UBS bank's VelocityShares inverse VSTOXX futures ETN <EXIV.K>, which allows investors to short the European volatility gauge, halted trading on Tuesday after a sharp fall.

Still, the ETN had assets under management of around $30 million on Tuesday, tiny compared with the XIV, which had a net asset value of $1.9 billion prior to its collapse according to Lipper.

A source close to the matter said UBS was not affected by moves in its ETN as it was not a note-holder itself and did not need to hedge its position, contrary to Credit Suisse. http://tmsnrt.rs/2Erie9N

Feb 8 UBS Inverse VSTOXX ETN: http://reut.rs/2EuTOMP

FORMAL REGULATION REQUIRED?

ETF issuers said they had screening processes in place to ensure investors were sufficiently experienced to trade the products responsibly.

All the biggest European ETF providers said their products were mainly used by professional, not retail, investors.

But the fact ETFs are listed on exchanges means any investor can technically gain access to them. And it's easier than ever for inexperienced investors to buy these products, as retail investment platforms and apps have proliferated.

The Boost ETP tracking the VIX <VILX.L> is available on Hargreaves Lansdown's (>> Hargreaves Lansdown) investment platform, which has more than 1 million private investor clients.

A spokesman for Hargreaves Lansdown said the product is flagged on their platform as "sophisticated", meaning investors must complete a questionnaire before buying it.

"If... we deem they do not have sufficient knowledge and/or experience, they are not able to trade that security," he said.

Credit Suisse's XIV ETF was offered on eToro, a self-styled 'social media investment platform' allowing retail investors to follow each other, share portfolios and chat about trades. The platform has 9 million users.

A day after Credit Suisse said it was closing the fund, a Romania-based eToro user commented "$XIV - time to buy the dip? Any chance for a rebound?"

EUROPEAN FUND STRUCTURE DIFFERS FROM U.S.

Lyxor Asset Management, a subsidiary of France's Societe Generale (>> Société Générale), offers only ETFs rather than ETNs.

Its leveraged products, which include an ETF tracking the VIX <VOOL.DE> and others providing double short exposure to major European indexes, are mainly used by professional investors for hedging purposes, and do not feature on the firm's retail website, Laird said.

British bank Barclays (>> Barclays), which offers ETNs tracking the VSTOXX and VIX short- and medium-term futures through its iPath ETF arm, declined to comment on its products. <VXX.P>

Britain's Financial Conduct Authority, which warned in April 2016 that exchange-traded products carried risks and were not suitable for all investors, had no comment on events this week.

SPREAD-BETTING OFFERS LEVERAGED TRADES

Leveraged volatility trades are not limited to ETFs. Spreadbetting firms also offer 'mom and pop' investors the opportunity to bet on the VIX.

CMC Markets (>> CMC Markets Plc) allows investors to take a position in VIX of up to 10 times their upfront investment.

The margin rate increases from 10 percent for a small position size to a maximum of 75 percent for bigger bets.

"There are no plans to restrict leverage," a CMC Markets spokesperson said on Wednesday.

Rival firm IG (>> IG Group Holdings) imposes a leverage limit of 8:1 on VIX futures, one of the tightest limits on their platform, and requires anyone wanting to trade VIX products to be classified as a professional investor.

"The few people that are speculating on it really know their stuff," said IG dealer Ludwik Chodzko-Zajko.

A spokesperson for Plus500 (>> Plus500 Ltd), which offers leverage of up to 50:1, declined to comment, citing a close period before the company reports results.

ECHOES OF PAST EXCESS

For some investors, the implosion of these widely available leveraged products evokes past crises triggered by excessive financial engineering.

"It reminds me of the portfolio insurance in the 1987 meltdown," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman, referring to the Black Monday crash.

"Another example of financial innovation that the planet doesn't really need," said Eric Moore, fund manager at Miton Group in London.

Blackrock (>> BlackRock), the biggest provider of ETFs in Europe through its iShares platform, criticised the inverse and leveraged products it said had magnified the sell-off.

"Inverse and leveraged Exchange-Traded Products are not ETFs, and they don't perform like ETFs under stress," the world's biggest asset manager said in a statement. It said it supported a regulatory classification system that would clearly demarcate these products.

Credit Suisse XIV tracker collapses: http://reut.rs/2Eqfqdc

(Reporting by Helen Reid, Alasdair Pal, Simon Jessop, Maiya Keidan, Tricia Wright; Editing by Hugh Lawson)

By Helen Reid and Alasdair Pal

Stocks mentioned in the article
ChangeLast1st jan.
BARCLAYS -2.20% 179.89 Delayed Quote.-9.42%
BLACKROCK 0.38% 477.21 Delayed Quote.-7.11%
CMC MARKETS PLC 3.41% 188.2 Delayed Quote.21.33%
CREDIT SUISSE GROUP -1.27% 14.78 Delayed Quote.-13.97%
DEUTSCHE BANK -2.36% 9.805 Delayed Quote.-36.73%
DJ INDUSTRIAL 0.45% 25299.92 Delayed Quote.1.90%
FLOW TRADERS 0.08% 24.82 Delayed Quote.24.00%
HARGREAVES LANSDOWN 0.09% 2131 Delayed Quote.18.15%
IG GROUP HOLDINGS 1.32% 884 Delayed Quote.21.60%
NASDAQ 100 0.62% 7447.1679 Delayed Quote.15.71%
NASDAQ COMP. 0.65% 7870.8945 Delayed Quote.13.27%
PLUS500 LTD 5.54% 1830 Delayed Quote.90.64%
S&P 500 0.24% 2839.96 Real-time Quote.5.97%
SOCIÉTÉ GÉNÉRALE -0.66% 35.31 Real-time Quote.-17.43%
share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on BLACKROCK
08/10BLACKROCK : Announces Change to iShares Commodities Lineup
BU
08/10DIGIMARC : DMRC) CEO Bruce L. Davis Sells 455 Shares
AQ
08/09JPMorgan's ETF Business Is Finally Catching Up to Goldman
DJ
08/08Bank of Stockton Sells 573 Shares of Accenture Plc
AQ
08/06POLAR CAPITAL : to base top risk officer, four others in Paris after Brexit - CE..
RE
08/03WARREN BUFFETT : Buffett Leads Parade of Apple Winners -- WSJ
DJ
08/02WARREN BUFFETT : Warren Buffett Leads Parade of Apple Winners
DJ
08/02TODAY’S RESEARCH REPORTS ON STOCKS T : Paycom Software and BlackRock
AC
08/01BLACKROCK : Completes Acquisition of Tennenbaum Capital Partners, LLC
PR
08/01BLACKROCK : Completes Acquisition of Tennenbaum Capital Partners
BU
More news
News from SeekingAlpha
08/13BLACKROCK AND TOYOTA : 2 Global Powerhouses 
08/12Tracking Dan Loeb's Third Point Portfolio - Q2 2018 Update 
08/10BlackRock plans to close, liquidate iShares commodities optimized trust 
08/08Intesa Sanpaolo Is Ready To Take Off 
08/03Nicholas Ward's Dividend Growth Portfolio 
Financials ($)
Sales 2018 14 689 M
EBIT 2018 5 850 M
Net income 2018 4 461 M
Finance 2018 5 925 M
Yield 2018 2,50%
P/E ratio 2018 17,30
P/E ratio 2019 15,86
EV / Sales 2018 4,78x
EV / Sales 2019 4,35x
Capitalization 76 143 M
Chart BLACKROCK
Duration : Period :
BlackRock Technical Analysis Chart | MarketScreener
Full-screen chart
Technical analysis trends BLACKROCK
Short TermMid-TermLong Term
TrendsBearishBearishNeutral
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 15
Average target price 586 $
Spread / Average Target 23%
EPS Revisions
Managers
NameTitle
Laurence Douglas Fink Chairman & Chief Executive Officer
Robert Steven Kapito President & Non-Independent Director
Robert L. Goldstein Chief Operating Officer & Senior Managing Director
Gary S. Shedlin Chief Financial Officer & Senior Managing Director
Derek N. Stein Global Head-Business Operations & Technology
Sector and Competitors
1st jan.Capitalization (M$)
BLACKROCK-7.11%76 143
BANK OF NEW YORK MELLON (THE)-5.37%50 137
STATE STREET CORPORATION-14.07%31 435
NORTHERN TRUST CORPORATION7.41%24 514
AMERIPRISE FINANCIAL-18.18%19 706
FRANKLIN RESOURCES-25.57%16 887